BLOGS: Trade Secrets Blog

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Tuesday, June 28, 2011, 6/28/2011 11:04:00 AM

Vienna Beef Sues Founder's Great-Grandson, Saying Hot Dog Recipes at Risk

By Todd

Courthouse News Service is reporting that a federal judge has ruled that Vienna Beef, the Chicago-based hot dog dynasty, cannot get a temporary restraining order to prevent its founder's grandson from allegedly misusing trade secrets. Samuel Ladany is one of the Austro-Hungarian immigrants who founded the company. Samuel's grandson, Scott Ladany, started out with a 10 percent interest in Vienna Beef back in 1971, but he left the company in 1983 and signed a noncompete agreement, complete with a confidentiality clause, regarding Vienna Beef's trade-secret recipes. When that noncompete term expired in 1986, Ladany branched out with his own frankfurter venture, Red Hot Chicago.

Vienna Beef filed suit this month for a restraining order, arguing that Red Hot has released "promotional material ... [that] contains several of Vienna Beef's trademarked phrases," including "Make Me One With Everything" and "Drag It Through The Garden." Red Hot also makes "numerous references to RHC using family recipes" that rightfully belong to Vienna Beef by saying it has used the same sausage recipe for the last 118 years.

On Tuesday, U.S. District Judge Sharon Johnson Coleman rejected Vienna Beef's application for a temporary restraining order against Red Hot, finding that the order was not necessary to prevent irreparable injury to Vienna Beef.

Weiner photograph is shown above.

Monday, June 27, 2011, 6/27/2011 08:37:00 AM

Biscuit Tin as Foil to Corporate Espionage?

By Todd

This just in from the Financial Times - executives and officers at a German chemicals company are being asked to toss their mobile phones into a biscuit tin before important meetings to stop spies stealing trade secrets. Evonik believes the biscuit tins protect cellphones from being pirated.

Mobile phones, even when switched off, can be activated remotely and used to pick up sensitive conversations, according to Wirtschaftswoche, the magazine that first reported the story.
The sealed tin acts as a makeshift Faraday cage, blocking electromagnetic radiationto those in the room. The container also stops incoming calls and e-mails.

Evonik of Essen had sales of about €13.3bn ($18.5bn) and earnings before interest and tax of €1.6bn in 2010 and is considering a share sale this year that would be the German stock market’s largest in a decade.

It confirmed that it had placed the tins in conference rooms for use during sensitive meetings, such as those that involve research and development staff.

“[Corporate espionage] is an issue and we are mindful of that and have created a special corporate role to deal with it,” said the company. But Evonik dismissed as “pure speculation” the magazine’s assertion that was particularly keen to protect its expertise in lithium-ion batteries for use in electric vehicles.

This is the first we've heard of this use of the biscuit tin.

Wednesday, June 22, 2011, 6/22/2011 09:52:00 AM

General Dynamics Case Against Two Departed Employees is Over

By Todd

Courthouse News Service is reporting that United States District Court Judge Frank Whitney of the Western District of North Carolina has dismissed claims by General Dynamics that two former employees had stolen secrets to aid them in their new defense contracting firm. What the Courthouse News Service does not report, apparently, is that the case was dismissed pursuant to Rule 41, in which both parties stipulate that the matter be dismissed.

Although we don't know how the case was ultimately resolved or settled, we do know that the former employees, Gerard Snyder and Kenneth Morrison, say they had merely pursued new technologies and business opportunities in which their longtime employer had either expressed no interest or had rejected.

The men had been members of an advanced program team at General Dynamics Armament and Technical Products, which designs, develops and produces high-performance weapon and armament systems, defensive armor, and biological- and chemical-detection systems.

Snyder and Morrison established Advanced Mission Systems in 2006, and used General Dynamics' computers to gather information about new products, applications in development, and the current and future needs of its military and security industry clients, according to the complaint filed in 2009.

Snyder and Morrison originally argued General Dynamics failed to specify what trade secrets were allegedly stolen and how they were used. Given their former positions and the broadness of the allegations against them, they said the court could not possibly reach any legal conclusion about the claim.

We do know this - the case is no longer pending on the federal docket.

Tuesday, June 21, 2011, 6/21/2011 10:46:00 AM

Dallas Sports Marketing Powerhouse Accuses Former Employee of Stealing Large Amounts of Trade Secrets on Way Out the Door

By Todd

The Dallas Observer is reporting that Genesco Sports Enterprises, a powerhouse consulting group that matches athletes and sports with certain products, has sued former employee, Sidney White, of using USB flash drive devices to essentially download a treasure-trove of confidential and competitively sensitive data regarding the business.

The suit alleges that on his way out the door, and until the very last second, Sidney White dumped file after file from his laptop and Genesco's servers onto a USB flash drive. White, says the suit, signed a confidentiality agreement in '04 as part of his employment contract included with the filing.

The suit says the "information stolen contains customer account information, including marketing profiles, strategy and budgets for particular products and events." As a result, says yesterday's filing, "such marketing profiles, strategies and budgeting, if forwarded to a Genesco Sports competitor or used in Defendant's own competitive business, will lead to an unfair competitive advantage which the other business would not otherwise have if such confidential and proprietary information were not stolen."

You can find a copy of the complaint here:

Wednesday, June 15, 2011, 6/15/2011 09:24:00 AM

AllianceBernstein Claims Customers' Names, Addresses, Tax ID #s Are AllianceBernstein's Trade Secrets

By Todd

Law360 is reporting that AllianceBernstein has sued one of its former financial advisers with a contract suit in New York state court on Monday, accusing him of using the investment firm's trade secrets to solicit clients on behalf of his new employer, UBS Financial Services.

Defendant David Moran worked for AllianceBernstein from 2001 until Friday, when he abruptly quit and immediately signed on with competitor UBS, according to the complaint. The trade secrets at issue — which include confidential information like client contact information and net worth, as well as marketing techniques and investment strategies — are highly valuable, and the client information in particular could give a rival a virtual "gold mine" of potential clients, according to AllianceBernstein.

Now we have a question for you, our readers: the AllianceBernstein complaint says that the "trade secret information" includes each customer's "name, tax identification number, address, telephone number, account balance, asset allocation, income, net worth, place of employment, tax status . . . . " But, we ask you: how can that be? How can AllianceBernstein claim a trade secret property interest in their CUSTOMER'S information - especially considering that the customer could presumably, at any time, instruct AllianceBernstein that he/she wants their file and accounts transferred to another company and AllianceBernstein would have to comply? That's a weird type of trade secret, isn't it, when the trade secret itself is subject to someone else's instructions?

Give that one some thought, folks. The issue is whether banks and financial institutions actually own that data as trade secrets or, perhaps instead, alternatively they are just holders/keepers of the information until the client tells them otherwise.

Tuesday, June 14, 2011, 6/14/2011 09:52:00 AM

Woodchuck Cider Says Employee Stole Trade Secrets and Now Uses Them For McKenzie's Cider

By Todd

The Rutland Herald is apparently reporting that the folks at Woodchuck Cider have sued their former employee, Leonard Ciolek, who worked at Vermont Hard Cider Company in Middlebury for seven months. During that time, company officials say Ciolek stole recipes and then left to launch his own cider company called McKenzie's Cider. The Woodchuck company wants the court to order an examination of Ciolek's computer files to prove what they are claiming.

Cider in Vermont is big business so Mr. Ciolek, who is allegedly a New Yorker, better make sure he can demonstrate how he independently developed McKenzie's Cider. Like they say, home cooking doesn't always taste so good if you get it served by a Vermont judge or jury.

Woodchuck publishes food recipes that utilize their cider so we thought we'd publish one here:

Apple Cheese Soup

1 cup grated apple
¼ cup chopped onion
4 tbsp. butter
¼ cup flour
2 ½ cups milk
2 cups shredded sharp cheddar cheese
¼ tsp. salt
½ tsp. nutmeg
½ bottle Woodchuck Hard Cider

In saucepan, cook apples and onions in butter until tender. Add flour and blend until smooth. Stir in milk and Woodchuck Hard Cider. Cook over medium heat, stirring occasionally until mixture thickens. Add cheese and seasonings. Stir as they melt. Garnish with a dash of nutmeg.

Monday, June 13, 2011, 6/13/2011 10:25:00 AM

Eleventh Circuit Holds Former Employer Should Have Used Present Perfect Tense to Restrain Employee In Disclosure of Confidential Information

By Todd

Robert T. Emmel started working for News America in 1999 as an account director in its Atlanta office. He sold News America's services to various retail chains, maintained relationships with those retailers, renewed contracts, contracted for new business, and implemented various sales initiatives. In his position Emmel was privy to a wide variety of confidential and proprietary information.

In late 2005, the relationship began to sour. Emmel asserts that the reason that happened is he became convinced that News America “was engaged in widespread illegal activity against its customers, competitors, and shareholders” and that management intended to do nothing about it. By contrast, News America argues that the deterioration in their relationship was triggered by a change in Emmel's job responsibilities.

Regardless, in January 2006 Emmel began disclosing News America's confidential information to people in a number of government offices. First, Emmel contacted the office of Senator Paul Sarbanes to discuss his concerns about News America, and he later sent the Senator's office a memorandum concerning News America's business practices along with 100 pages of News America's confidential information. Emmel's appellate brief describes those documents as:

"substantial oral and documentary evidence of News's extensive billing and revenue-sharing fraud against its customers; its predatory and anti-competitive schemes against competitors Floorgraphics, Insignia, and Valassis; and News's fraudulent inflation of its reported earnings unbeknownst to its shareholders."

But to News America the documents were: “confidential contract terms, business strategies, financial terms with customers, financial plans, and other financial data.” In February 2006 Emmel made the same disclosures to the SEC and met with SEC staffers. Later that year he made disclosures to the New York Attorney General's Office, to the office of Senator Charles Grassley, and to the Finance and Judiciary Committees of the United States Senate. None of the disclosures was authorized by News America, and during all of that time Emmel remained a News America employee.

By November 2006, the relationship between Emmel and News America had turned from sour to bitter. News America had still not learned of Emmel's disclosures, but he had stopped coming into the office during regular work hours and had let others at the company know that he was looking for employment elsewhere. News America terminated him effective November 30, 2006.

In December 2006 Emmel became interested in a job with POP Radio, and he asked News America to tell POP that he was not obligated under any non-compete agreements. After some negotiations, News America agreed to provide Emmel with a letter explaining that he was not under a non-compete agreement, and he in turn agreed to sign a post-employment agreement that included a promise he would not disclose any of News America's confidential information or disparage the company. That agreement was signed on December 21, 2006. The part of the agreement that is relevant to this appeal includes the following promise:

Emmel agrees that he will not disparage, denigrate or defame the Company and/or related persons, or any of their respected business products, practices or services. Emmel further agrees that he will maintain in complete confidence, and not discuss, share, reveal, disclose or make available to any third party or entity any “Confidential Information” of the Company.

The agreement goes on to broadly define “confidential information” to include: “all trade secrets and information ... and/or compilations of information that was disclosed to or acquired by Emmel ... that relates to the business of the Company and is not generally available to the public or generally known in the Company's industry.”

Emmel had a trick up his sleeve, however - the day BEFORE he signed the agreement, Emmel sent out one more batch of News America's confidential information. On December 20, 2006, he placed in regular mail a package of around 55 pages of News America's internal documents and confidential information. The package was mailed to Nick Podsiadly, a staffer for the U.S. Senate's Finance Committee who had been in regular e-mail contact with Emmel and had met with him in Washington the previous month. The timing of this disclosure was obviously no coincidence: Emmel even admitted in his deposition, “[M]y goal was to make sure that information got out before I would be signing an agreement.”

News America found out later Emmel had done this and sued him for breach of contract.

In support of its breach of contract claim, News America argued two different theories to the district court. First, it contended that various company policy documents, including its “Electronic Communications Policy,” “Standards of Business Conduct Policy,” and “Insider Trading and Confidentiality Policy” had created a binding non-disclosure agreement that Emmel had violated by making disclosures throughout 2006. Second, and more specifically, News America contended that Emmel had breached the terms of the December 21, 2006 agreement by his actions and inactions regarding the confidential information he mailed on December 20, 2006 to Nick Podsiadly at the Senate Finance Committee.

The first argument went nowhere - the district court held that the employment and communications policies did NOT amount to a contract with Emmel. The appellate court agreed.

The district court accepted News America's second contention, however, reasoning that even though Emmel had mailed the package of documents before he signed the agreement, “it is undisputed that the confidential documents had not reached their destination by December 21 and thus could not yet have been viewed by anyone until that point.” The court found it “significant” that Emmel did nothing to prevent the impending disclosure after he signed the agreement. By not making an attempt to stop Podsiadly and the Senate Finance Committee from viewing the documents, the court reasoned, “[Emmel] clearly breached the non-disparagement provision of the agreement.”

Emmel appealed. He argued, persuasively and correctly, that to find him to have breached the confidentiality covenant through conduct that occurred before the contract was executed “disregards the basic rule that a contract operates only prospectively from execution absent language of retroactive effect.” The appellate court agreed with Emmel and his argument that "to capture his pre-contract conduct the promises would have needed to be phrased in the present perfect tense—i.e., “Emmel agrees he has not disparaged, denigrated or defamed the company” and that he “has maintained in complete confidence” News America's confidential information." But Emmel didn't make that promise. He made a future-looking one.

For our readers and followers, the point of this post is to alert you to a possible gap in some of your attempts to restrain a departing or departed employee in connection with company confidential information or trade secrets. If you want to rely on contract as a means for doing that, make sure that you draft the contract in such a way that the employee agrees retrospectfully that he/she has NOT ALREADY DONE what they contractually agree they cannot do in the future. Otherwise there may be a gap in the contract and the company may lose an opportunity to recover for conduct that violates the expectations of those at the contract table. In short, consider having the employee sign an agreement written like a poem by William Carlos Williams - "I have eaten the plums that were in the icebox . . . . " Just sayin'.

The case can be cited as News America Marketing In-Store, LLC v. Emmel, (slip copy), 2011 WL 2222040 (11th Cir. June 8, 2011).

Friday, June 10, 2011, 6/10/2011 11:18:00 AM

Charlotte Bakery/Hang-Out Sues Florida Bakery/Hang-Out for Copying

By Todd

Amelie's is in Charlotte, North Carolina's trendy NoDa neighborhood and is open 24/7. It features a shabby-chic living room with availability of comfy couches and tables where patrons hang out with laptops and books and drink high-octane coffee and eat scones and the like.

The Charlotte Observer is reporting on a new lawsuit in which Amelie's owners are suing a Florida bakery that opened as an Amelie's, in partnership with the Charlotte people - but has since renamed itself Sophie's.

Here's what's undisputed from both sides: Todd and Carole Binkowski were longtime Amelie's fans when they lived in Charlotte. When the couple moved to Tampa, they and the Amelie's owners - Lynn St. Laurent, Bill Lamb and Brenda Ische - agreed to go into partnership to see if an Amelie's could work in the Hyde Park neighborhood there. People from Amelie's worked on the new space's look and food, and it opened in late February.

Then versions diverge.

The Amelie's owners' suit says the Binkowskis knew Amelie's wanted to franchise, while Todd Binkowski said the goal was only to "prove" the business model, and that he did not expect to be treated like a franchisee.

Negotiations went back and forth, according to the suit, including numbers from $50,000 to $75,000 for Amelie's "know-how" and various spellings-out of who would decide what could be sold in Tampa and who would own new recipes.

No agreement was reached, the Binkowskis renamed the Tampa place Sophie's and the suit was filed June 6 in U.S. District Court in Florida.

These types of lawsuits rarely end up with true winners. We imagine Sophie's is going to have to prove its recipes and concoctions are not copied from Amelie's. We also imagine that the "look of Amelie's" trade dress argument is going to be hard for Amelie's to prove has gained secondary meaning. But, we shall see.

Thursday, June 09, 2011, 6/09/2011 09:54:00 AM

Office Equipment Sales Companies Square Off in Sioux Falls Trade Secrets Battle

By Todd

We don't just cover the big-name trade secret cases here, folks. We even tell you about the smaller skirmishes.

The Sioux Falls Argus-Leader is reporting that two Sioux Falls businesses are at the center of a lawsuit with one accusing the other of breach of contract and violation of the Uniform Trade Secret Act.

Marco Inc., which recently purchased Best Business Products in Sioux Falls, filed a complaint May 27 with the United States District Court against Advanced Systems Inc., alleging unfair competition and interference with Marco's customer and employment contracts, among other accusations.

Seems Marco Inc. bought this Best Business Products' outfit but before they were able to get it operating some key Best Business employees jumped ship and went to work with a third company, Advanced Systems. The lawsuit is targeted, of course, at Advanced Systems and former Best employees Christine Bergeson, Wayne Ewing, Jim Liebsch, Michael Linton, Lorin Pitts, Paul Robson and Kent Reilly.

The lawsuit alleges that Bergeson, Ewing, Liebsch and Pitts "simultaneously resigned from their employment with Best and started Advanced System's new 'Sioux Falls' branch office' " on April 28, the day before Marco closed on the Best acquisition. They then "began immediately targeting Best customer accounts, the same accounts that Marco lawfully purchased from Best," court papers say.

The lawsuit claims that Advanced Systems has used "confidential information" it obtained from Best and from the individual defendants, "including the information that Ewing stole prior to his departure from Best, to solicit Best's employees and Best's customer accounts."

This is the classic successor-in-interest litigation that frequently occurs following acquisitions. Employees of the sold outfit want a new deal and aren't comfortable with the new owner. New owner says the employees conspired to take from it what the new owner thought it was purchasing. And so the world turns . . . .

Wednesday, June 08, 2011, 6/08/2011 09:27:00 AM

Clark County, Nevada Sued by Dotty's Gaming

By Todd

What happens in Nevada doesn't necessarily stay in Nevada, according to a report by VEGASInc. Apparently Dotty is peeved that confidential financial records and data provided to the county for an audit were later leaked by the county to Dotty's competitors.

Dotty’s business model involves slot machines that stand alone and are grouped in brightly-lit mall locations – a business model targeting women who don’t like the traditional bar scene.

Competitors say Dotty’s is operating unfairly since they say its gaming revenue is not incidental to its main business of selling food and drinks – charges denied by Dotty’s.

In an amended lawsuit filed Monday, attorneys for Dotty’s complained that at the direction of Commissioner Steve Sisolak, the county business license department conducted a non-routine audit of Dotty’s in October and November.

"During the audit process, representatives from the department acknowledged that the business records provided by Dotty’s pursuant to the county’s audit process would 'be treated as confidential.' Indeed, the Clark County Code specifically codifies the guaranty that such information will remain protected," the amended suit charges.

"Shortly after the audit was conducted and from approximately December 2010 through March 2011, certain board (of County Commission) members began disseminating Dotty’s financial and revenue-source information to Dotty’s competitors, the public and the press without Dotty’s consent or authorization and in direct contravention of the county’s promise and legal duty to treat this information as confidential," the suit charges.

"Adding insult to injury, the confidential information was not merely disclosed, it was grossly and inaccurately inflated in public statements to enhance and support the argument that Dotty’s gaming component is not merely 'incidental' to its overall revenue and to fuel the crusade against this successful and lawfully conducted business," the amended complaint says.

This alleged leaking of information resulted in new claims against the county in the amended lawsuit of public disclosure of private facts, misappropriation of trade secrets and negligence.

We're not betting on how this one turns out.

Tuesday, June 07, 2011, 6/07/2011 10:04:00 AM

Northwestern Engineering Professors Lose Trade Secrets Claim Against Former Students in Seventh Circuit

By Todd

Plaintiffs Seng–Tiong Ho and Yingyan Huang are engineering professors at Northwestern University. Defendants Huang and Chang were engineering graduate students at Northwestern University.

In 1998, Plaintiff Ho conceived of and first formulated a “4–level 2–electron atomic model with Pauli Exclusion Principle for simulating the dynamics of active media in a photonic device (‘the Model’).” By 1999, Plaintiff Ho had completed mathematical derivations of the Model, which comprised sixty-nine pages of notes and equations. The Model currently has no known commercial use.

Defendant Chang worked for Plaintiff Ho in the late 1990s as a graduate research assistant. In June 2002, Defendant Chang switched to Professor Taflove's research group. When Defendant Chang switched groups, he was warned by the head of the department not to continue any work previously done in Professor Ho's group and to avoid misappropriating Professor Ho's work. Mr. Chang returned several of Professor Ho's notebooks, but he failed to return an original copy of one of Professor Ho's notebooks previously issued to him in early 2002 to record his work.

Professor Taflove and Mr. Chang submitted a symposium paper to the IEEE Antennas and Propagation Society (“APS paper”) and an article to the journal Optics Express (“OE article”). These submissions described the Model and its applications: The APS paper provided a brief summary, and the OE article described the Model in detail. Some of the figures in Ms. Huang's master's thesis also were included in these submissions. The APS paper was published in 2003, and the OE article was published in 2004. Professor Taflove and Mr. Chang did not attribute any of the contents of the OE article or the APS paper to Professor Ho or Ms. Huang.

Professor Ho first became aware of the alleged wrong-doing in 2004, when he submitted his project for publication in Optics Communications, and it was rejected because of a previously published paper on the same topic, namely Professor Taflove and Mr. Chang's APS paper. In 2007, the plaintiffs received certificates of copyright in Professor Ho's 1998 and 1999 notebooks, Ms. Huang's master's thesis, two figures used within Ms. Huang's master's thesis and a visual presentation given by Ms. Huang that discussed the Model.

Professor Ho and Ms. Huang allege that Professor Taflove and Mr. Chang infringed upon their copyrights six times, by using the copyrighted materials without permission in the following documents, listed chronologically: (1) the APS paper; (2) Mr. Chang's Ph.D. thesis; (3) the OE article; (4) Professor Taflove and Mr. Chang's book chapter, published by Artech House in 2005; (5) Professor Taflove's presentation in 2006; and (6) Professor Taflove's presentation in 2007. “[T]he two main infringing documents” are the APS symposium paper and the OE article, as the other incidents of infringement involve parts of these two documents.

Professor Ho and Ms. Huang brought this action against Professor Taflove and Mr. Chang, alleging copyright infringement and state law claims of false designation of origin, unfair competition, conversion, fraud and misappropriation of trade secrets. We will focus on the trade secrets ruling that Professor Ho and Ms. Huang were not the victims of trade secret misappropriation.

In the district court's view, no trade secrets misappropriation occurred because the Model was not kept secret. It reasoned that the Model was published by Professor Ho and Ms. Huang in 2001 and 2002. Moreover, a trade secret is not dependent on whether proper attribution is given in later publications.

In support of a trade secrets misappropriation claim, Professor Ho also had asserted that Professor Taflove and Mr. Chang's article and book chapter contained some materials from the notebooks that were not previously published. The district court, however, found this statement “unsupported” and “nebulous.” Thus, the assertion by Professor Ho was insufficient to support a claim of trade secrets misappropriation.

The appellate court, agreeing with the trial court, reasoned as follows: "We need not decide whether the expressions of the Model had economic value because the plaintiffs did not show, in their summary judgment papers, that the expressions of the Model had the status of secrecy.

Professor Ho and Ms. Huang concede that “Professor Ho's research results were partially published in a conference paper in 2001 and then published in more detail in 2002” in Ms. Huang's master's thesis.

The plaintiffs, nevertheless, offer two reasons why the Model had the status of secrecy; both of these contentions fail. The plaintiffs first submit that “it is expected that anyone reading that thesis and using the Model would at least cite the thesis as the source of the expression of the Model.” Such an expectation of attribution, however, is not part of a trade secrets misappropriation claim. Once the possessor of information intentionally releases that information, the possessor can no longer make a successful trade secrets misappropriation claim because the information is not subject to reasonable efforts to maintain secrecy.

Professor Ho and Ms. Huang also contend that the defendants used “materials from Ho's copyrighted notebook that were not published.” As support for this assertion, the plaintiffs point to their statement of material facts, which refers, in turn, to Professor Ho's affidavit, submitted as Exhibit A to the plaintiffs' response to the summary judgment motion. In his affidavit, Professor Ho generally asserts that the defendants' publications included materials from one of his copyrighted, but unpublished, notebooks. The affidavit, however, does not specify what material allegedly was copied from Professor Ho's unpublished notebook, as opposed to that taken from Ms. Huang's published master's thesis or from other published sources. The plaintiffs claim that the defendants used material from Professor Ho's copyrighted notebook, but they provide no specific evidence linking the material in papers published by the defendant to that found exclusively in Professor Ho's unpublished notebook."

So this is officially "you've got to use reasonable means to keep your secrets secret" week at Womble Trade Secrets. The case can be cited as Seng-Tiong Ho v. Taflove, --- F.3d ----, 2011 WL 2175878(7th Cir. June 6, 2011). Click on the title above and you will be linked to the opinion.

Monday, June 06, 2011, 6/06/2011 10:18:00 AM

"How Sweet the Sound?" - Not for Ad Man Who Didn't Utilize Confidentiality Agreement

By Todd

Captain D's is a restaurant that sells a lot of fried fish. Jeffrey Greenfield collaborated with Erwin–Penland, a South Carolina advertising agency, on a marketing plan aimed at securing a contract with the Captain D's restaurant chain. Captain D's declined to implement the proposal, which centered on the general concept of a gospel choir competition entitled “How Sweet the Sound .” Erwin–Penland, however, later convinced another client, Verizon Wireless, to fund a modified version of the project, but without the participation of Greenfield or his company, 1st Approach LLC (collectively “Greenfield”). Greenfield subsequently demanded compensation from Erwin–Penland, who responded by filing a declaratory judgment action in South Carolina state court, seeking a ruling that Greenfield had no ownership interest in the “How Sweet the Sound” concept.

Greenfield removed the case to federal court and counter-sued and brought in everybody, including Verizon. Somebody had to pay him for this concept he originally shared with Erwin-Penland, right? Wrong, says the federal court in South Carolina and the appellate court at the Fourth Circuit.

Seems Greenfield didn't use any kind of NDA or confidentiality agreement BEFORE sharing his idea with Erwin-Penland.

Greenfield did come up with the ideas for, or introduce the concept to, the following: Greenfield sent Erwin–Penland a marketing deck outlining a concept he labeled “ ‘Amazing Grace’ Captain D's Branded Reality Show.” Erwin–Penland subsequently changed the name of the proposal to “How Sweet the Sound.” The “How Sweet the Sound” concept involved “[t]he top 20 church choirs in the U.S. competing for over $250,000 in prizes and the title of the Best Choir in the USA.” A production team of producers and cameramen, along with a host “[s]imilar to Ryan Seacrest on American Idol,” would “cross the country in [a] 6 week trek of visiting EVERY Captain D's location,” using local media to publicize the event. Once there, the team would interview local choir members about their “choir and why they think they are the best in the US.”

Competitions would then take place in Atlanta, Georgia; Jackson, Mississippi; Birmingham, Alabama; and Charleston, South Carolina between the best twenty-five choirs in each region. Each contest would be featured in a television episode, take place “in large arenas,” and “have a large panel of celebrity judges who [would] vote on the best overall performance.” The winners of the regional competitions would then “be invited to attend [a] National competition in Nashville,” Tennessee featuring “the 4 best church choirs in the country in an authentic inspirational contest to find the # 1 Choir in the USA.” Id. Winning the national competition would entitle a choir to “the title of the Best Choir in the USA” and “over $250,000 in prizes.”

Although Captain D's passed on the idea, Greenfield and Erwin–Penland presented a similar “How Sweet the Sound” concept to Verizon Wireless, one of Erwin–Penland's existing clients. Modifications were made to this proposal to better suit Verizon Wireless' business model. For example, Greenfield and Erwin–Penland suggested signing choirs up for the competition at Verizon Wireless stores and creating “a CD of the winning choirs” that would be distributed “through stores and agents.”

Although Verizon Wireless also expressed interest in the “How Sweet the Sound” concept, it had concerns about the plan's projected cost. Greenfield and Erwin–Penland subsequently worked to scale back the television component of the project to a one-hour special or documentary. When Verizon Wireless' response to this less-expensive model was not immediately forthcoming, Greenfield inquired as to whether Verizon Wireless was still interested in the concept or whether he was free to present it to other clients. Erwin–Penland responded that Verizon was still considering the scaled-back plan.

Over a year later, Erwin–Penland and Verizon Wireless implemented a limited “How Sweet the Sound” marketing concept by organizing a single gospel choir competition in Memphis, Tennessee. The project later evolved into a series of gospel choir competitions orchestrated throughout the nation. In 2009, the final contest was televised on the Gospel Music Channel and a documentary about the series appeared on the Black Entertainment Television Network (“BET”). Although other agencies aided Erwin–Penland and Verizon Wireless in implementing the “How Sweet the Sound” concept, Greenfield was not asked to assist, and had no part, in executing the plan.

Greenfield demanded compensation and arguments ensued regarding whether the concept was essentially his trade secret. Erwin-Penland didn't agree and brought the suit instead of waiting for Greenfield to sue them. The trial and appellate courts both focused on Greenfield's failure to use reasonable means to keep his secrets, in fact, secret. The Fourth Circuit noted that "individuals “entitled to a trade secret” and desiring “to have its exclusive use in [their] own business” are barred from “lightly or voluntarily hazard [ing] its leakage or escape. Revealing a trade secret to others is consequently fatal to its protected status unless one “exercise[s] eternal vigilance.” The exercise of “eternal vigilance” imposes a heavy burden on the owner of a trade secret, as it “calls for constant warnings to all persons to whom the trade secret has become known and obtaining from each an agreement, preferably in writing, acknowledging its secrecy and promising to respect it.”

Greenfield's rebuttal - that he placed confidentiality stamps on most of his materials - didn't persuade the appellate panel. "Although Greenfield unilaterally placed confidentiality notices on some of his materials, these notations are not sufficient to create a genuine issue of material fact as to the reasonableness of his conduct. South Carolina courts do, of course, require such “warnings to all persons to whom the trade secret has become known.” But South Carolina law is clear that warnings alone are insufficient to place a trade secret within the sphere of protection provided by the Act."

Judge Gregory, dissenting in the case, thought the jury should have decided whether Greenfield's efforts to protect his "secrets" were sufficient: "There is a rich record with details pointing in both directions regarding Greenfield's efforts to protect his ideas, with both copyright and confidentiality notices, including one that was specifically removed by EP without Greenfield's permission, that indicates while the arguments in his favor may ultimately be overcome, a jury should at least have been allowed to view his efforts."

Judge Gregory noted "There was no non-disclosure agreement (“NDA”) between the parties. Nevertheless, the two had extensive collaboration including conference calls, meetings, and materials sharing. The information Greenfield transmitted to EP, in the form of PowerPoint slides as part of a presentation “deck,” was under explicit confidentiality provisions. Specifically, the disclaimer on the slides presented to Captain D's read: “[t]he ideas and concepts contained within this document are the sole and confidential property of 1st Approach, LLC and will not be shared with any other agency or utilized without prior written consent.”

Unfortunately for Greenfield, Judge Gregory was only one of three appellate judges who believed his case should've gone to the jury. We'll see if he asks for en banc review.

The case can be cited as Hill Holliday Connors Cosmopulos, Inc.v. Greenfield, Slip Copy, 2011 WL 2160642 C.A.4 (S.C.),2011.

Friday, June 03, 2011, 6/03/2011 12:05:00 PM

MGA/Bratz's Law Firm Seeks to Withdraw In Related Case

By Todd is reporting that Orrick, Herrington & Sutcliffe, which helped win an $88.5 million jury verdict for MGA Entertainment Inc. in a dispute over the rights to the highly profitable Bratz doll line, has asked for permission to fire its client in a related dispute on the ground that the company owes more than $1.2 million in attorney fees.

The firm filed a motion to withdraw from the second case on May 27, several days after its lawyers argued in California that MGA should be awarded $129 million in attorney fees after winning the verdict against Mattel Inc., maker of the Barbie doll. Mattel's attorneys disputed that amount. U.S. District Judge David Carter, who is hearing the Mattel matter in Santa Ana, Calif., has not yet ruled on the fees.

In an attached declaration, Orrick partner Annette Hurst, who works in San Francisco and was co-lead trial counsel in the Mattel matter, wrote that she advised MGA General Counsel Jeanine Pisoni on May 12 that Orrick would move to withdraw from the New York case due to MGA's failure to meet its financial obligations. She wrote that MGA has paid the firm for only two months of work since the case was filed in October 2009.

That case was brought by a New York artist who sued MGA and Mattel for copyright infringement after discovering from press reports that doll designer Carter Bryant, in testimony in the California case, said he drew inspiration for the Bratz doll from figures of "trendy or fashionable young women with a sassy attitude" depicted in several Steve Madden shoe advertisements, according to the complaint. The artist, Bernard Belair, claims to own the copyright to several of the images in those ads, which appeared during the late 1990s in several magazines, including Seventeen.

Orrick, which began representing MGA in the Mattel matter in May 2009, agreed to handle the New York case subject to "stringent conditions regarding payment," according to Hurst's declaration. At the time, the firm, which charged "normal hourly rates," understood that MGA's insurers would pay the bills but that, regardless of insurance coverage, MGA would pay outstanding invoices. By fall 2010, MGA had not made a single payment, she wrote.

When Orrick suggested withdrawing from the case, MGA negotiated a monthly payment schedule. MGA paid for two months — November and December — but has not stuck to the schedule and now owes more than $1.2 million, Hurst wrote.

Orrick's relationship with MGA will continue to sour, she wrote, because Pisoni had confirmed that Orrick would not serve as lead counsel in the New York matter should it go to trial. Orrick does not plan to handle an anticipated appeal of the Mattel matter, Hurst wrote. "It is likely that Orrick will become adverse to MGA at that time, as it seeks to recover its fees from the Mattel action through arbitration," Lisa Simpson, an Orrick partner in New York who is handling the Belair case, wrote in a memo accompanying the withdrawal motion.

Hurst noted that Mattel's likely appeal would delay payment in that matter for at least several years. Regardless, MGA has not indicated it will use the proceeds from the judgment in that case to pay Orrick's fees in the New York lawsuit, nor has MGA said it would pay fees owed in any matter other than through its insurers. MGA owes several additional firms, including O'Melveny & Myers; Skadden, Arps, Slate, Meagher & Flom; and Keller Rackauckas. MGA is in litigation with its insurers and O'Melveny, which sued last year to recover $10.2 million in fees.

Wednesday, June 01, 2011, 6/01/2011 10:11:00 AM

IP Watchdog Piece Argues Prior Use Trade Secret Interests Impair Patent System

By Todd

Neither of the authors of this blog are patent attorneys but we are generally aware there is a strain of patent law that provides that prior user who is sued for infringement may be able to invalidate a patent by claiming prior invention. In other words, the alleged infringer argues "the asserted patent rights shouldn't have been given to the plaintiff because we were the original inventors of some or all of that patent."

Congress has been playing around with legislation titled the "America Invents Act" which some have termed the most important patent legislation since 1952. Earlier this month the Senate passed this bill overwhelmingly. Gene Quinn, the president and founder of IP Watchdog, Inc., has penned an interesting piece on this legislation that we have linked above. Mr. Quinn's particular focus is on outgoing Secretary of Commerce Gary Locke's comment that follows:

"[W]e believe that innovators who independently create and commercialize technology should not be penalized for, or deprived of, their investment. As a result, we believe that the availability of a prior user defense is, on balance, good policy."

Mr. Quinn, dissenting, argues as follows:

"But what about the innovators who independently create and invest, choosing to grow upon a patent? They couldn’t know about the secret held by the innovators the Obama Administration doesn’t want to penalize because it was precisely kept a secret. Those unsuspecting individuals, businesses, Universities and investors explain the innovation such that those of skill in the art will understand what the innovation is, how to make it, how to use it and what preferences exist, if any. They disclose this information to the public, bringing it out of the shadows of secrecy, invest and build upon this disclosure only to learn that their country appreciates bringing the invention out of the shadows by it cannot be enforced against those who covered up the innovation. That doesn’t sound fair to me, it doesn’t sound like good policy, and it seems that the party truly being penalize is the party that should be rewarded from outing the innovation so society benefits, as is the purpose of a patent system."

Mr. Quinn's ultimate point is synopsized when he suggests: "In fact, if a prior user rights regime is put in place it would tip the balance in favor of patents and disclosure to favoring trade secrets."

We'll keep an eye on this issue for you at Womble Trade Secrets. We admit that we have witnessed more than a few instances of departing employees attempting to patent technologies they learned of and worked with in their employment and it strikes us as trade secret attorneys that we also don't want patent law to incentivize patent claims or generate patent rights in those who weren't the actual inventors.

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